Product Strategy Tests SWIFT Unity

Arend, Mark, ABA Banking Journal

The financial institution-owned international securities messaging system, known as SWIFT, heard one message loud and clear in the latter days of 1992: steer clear of initiatives that compete directly with member institutions or risk losing key members. But not all members agree with that view.

Sorting out a solution will be a top priority of new executives at SWIFT, the Society for Worldwide Interbank Financial Telecommunication. The organization links over 3,500 financial institutions around the world via a communications network for transmitting standardized securities transaction and payment messages.

SWIFT, based in Belgium, is owned by over 2,000 of its user institutions; 170 of the owners are based in the United States. Over 500 U.S. users access the SWIFT network, including money center banks, regional banks, investment companies, branches of foreign financial institutions, and the Federal Reserve Bank of New York.

U.S. representation. U.S. banks now are better represented in SWIFT's upper management ranks, thanks to two appointments announced in the past year. Colin Klipin, senior vice-president for global payments services at Bank of America, is the new U.S. representative to SWIFT's board of directors. And Leonard H. Schrank assumed the position of SWIFT's chief executive officer last July. Schrank was president of Infomedics, Inc., a Boston-based medical communications software company. Prior to that, Schrank spent ten years in London managing Chase/International Data Corp.'s international activities.

Much of the opposition to certain SWIFF initiatives stems from the U.S. bank member institutions, which perceive some value-added services to be competitive to those that they offer. The services at issue include the foreign exchange and money-market netting system called Accord and a netting system for European currency unit payment balances.

Such concerns were raised in earnest at conferences in Europe last fall, particularly at SWIFT's user conference, SIBOS '92, in Brussels, and at the Payment Systems International Conference (PSIC), in London.

"SWIFT is not a value-added network, and many of us see little future in SWIFT's trying to compete as a value-added service provider for corporate business," said Charles Mallis in an address to the PSIC meeting in October. Mallis is global institutional marketing and product management executive with the InfoServe division at Chase Manhattan Bank, New York. "There is, however, plenty for SWIFT to do that is consistent with its bank-based charter," he added.

Among Mallis's suggestions for further use of SWIFT's resources are: the development of new protocols for international file transfers; the use of artificial intelligence in interbank message repair; computer-to-computer communications links; and expansion into regions of the world where telecommunications services are inconsistent or unreliable.

Pricing concerns. Another issue recently raised by members of SWIFT was its pricing structure relative to competing networks and telecommunications carriers. Naturally, the banks want SWIFT--their own network, in effect--to have low prices.

"We [bankers] feel a tremendous loyalty and predisposition to use SWIFT as the carrier of preference," said Mallis in a recent interview with ABA Banking Journal. "And that's not entirely dependent on SWIFT being the lowest cost provider of services." (SWIFT fees average about $.50 per message.)

Mallis continued: "We recognize the values of quality, efficiency, security, and dependability--especially in areas of the world where traditional telecommunications do not exist, and SWIFT provides that. But if service and price stray outside of the comfort zone, then we'll be forced, in our own self interest, to look elsewhere."

SWIFT's new management team, which besides Schrank and Klipin includes ex-Barclays Bank executive Eric Chilton, the new chairman of the board, has pledged to treat these issues as priorities. …

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